Examining the options for increasing funding for the Royal Navy

The case for naval expenditure

It is impossible to define the exact economic value to the nation of any of our armed forces but there are many examples of how the RN has been and could be crucial to protecting our interests. As our economy depends on the sea with much of it passing through vulnerable ‘choke points’, even a minor disruption to this trade could be disastrous with costs in Billions. Piracy is costing millions and spreading beyond the Horn of Africa yet the RN is so stretched it cannot even manage to assign a single ship to a continuous permanent anti-piracy tasking. On a smaller scale, Spanish fisherman are plundering the waters of Gibraltar because the RN is not present in sufficient force. Our oil exploration on the South Atlantic is threatened by Argentine interference which a single patrol ship cannot prevent. This site has consistently argued the case for the funding the RN properly and as these examples show, the benefits of a fleet go beyond its obvious role in a major conflict, it makes sense economically too.

Background

With a frightening national debt run up by the profligate Blair and Brown governments, it is clear that any responsible government must act to reduce the debt as fast as possible. We are actually spending more each year on paying interest on the debt than we do on defence. There is some limited sympathy with the Coalition government faced with a huge debt and deficit while every interest group in the country is pleading that they are a special case and not to cut their budget. However making Defence cuts in 2010 was a cowardly choice, without a Trade Union to speak for them, sending P45s to sailors, soldiers and airmen was an easy cut to make. The MoD had the strongest case of ANY department for ring-fencing its budget when the new government started to look for cuts.

Government spending 1990-2010

Government spending prior to the 2010 Defence Review 1990-2010

It had been easy for a succession of spineless ministers to keep ‘salami-slicing’ defence so they could spend money on more popular things. Defence spending was therefore already dangerously low when the economic crisis hit. Even in the ‘good times’ Blair and Brown, with a taste for overseas interventions still failed to ensure adequate funding for defence while other departments saw huge increases. The downright lies and spin that has accompanied their defence cuts resulted in a further loss of credibility. Instead of David Cameron insisting “we can still carry out the full spectrum of warfare” and “we will remain a first rank power”, his government should have at least carried out a more careful review, while admitting they were making cuts in capability for purely financial reasons. The continual ill-advised reduction in the defence budget over the last 22 years is squarely to blame for the mess we are now in but to put defence back on sound footing an unpalatable step-change in budget allocation is required.

22 years of shrinking budgets, a collapse in numbers of ships, and even aircraft carriers with no aircraft all suggest that it is reasonable to call for a change. Here we take a cursory look at the 6 options for funding a stronger Royal Navy, given the situation we are now facing.

1. Re-balancing priorities – take money for defence from other government departments

The first option to expand the existing budget for the RN would be to take funds from other government departments. It is clear that the Health and Welfare budgets in particular have become bloated, the Coalition is making some attempt at reform but virtually all changes are greeted with howls of protest. Britain genuinely loves the NHS (Sorry American friends, it is something wonderful and not the slippery slope to Communism) and no one wants it privatised or abolished. However it is a monster which does need to be tamed to an extent, now the 3rd largest employer in the world and another example of the UK living beyond its means.

One obvious candidate for re-allocation is the overseas aid budget (£11.4Bn). Giving aid money to economic powerhouses such as India & Brazil is insanity. There is a strong moral case to give aid to the very poorest and in times of crisis, but most UK ‘aid’ fails to find its way to the really poor and is frittered away by corruption and in futile schemes. If we are serious about helping the world’s poor we would do far better to force global corporations to trade fairly with the developing nations. Far better to spend that ‘aid’ money on national assets such as the RN to provide some real peace and security in the world’s shared spaces, its oceans. Unfortunately however logical, the spin doctors wouldn’t like the resulting “axe international development to spend money on arms” headlines. It’s easy to see how it’s become virtually unthinkable to take any money from one hard-pressed department to spend elsewhere, especially defence. It will probably be too late (ie. when we have suffered a serious military defeat or strategic setback) before the tide of opinion would accept this.

2. Raise taxes

Raising taxes is likely to damage economic growth and it is upon this growth our hopes of recovery, repayment of the debt and even a real increase in defence spending is perilously placed. Few would be willing to stomach a rise in taxation, least of all for defence, barring a specific national emergency. In theory governments around the world could get serious about properly taxing the obscenely wealthy who hide their money abroad while living under the security shelter provided by national defences. Recovering this money would make a considerable dent in the national debts of the US and the UK but unsurprisingly the super-rich have influence in high places that seems to keep this from being addressed.

3. Radical surgery on the structures of UK defence

The 3 services have been increasingly set against each other in battles over ever-dwindling budgets and of course the ‘divide and conqueror’ approach suits the politicians hell-bent on continual cuts. How we spend the defence budget should be analysed more rationally and divided according to national priority rather than allowing the 3 children to argue for their ‘fair’ share of the cake to maintain their private empires and prestige. Although there is a veneer of “Jointery” (and some very good working relationships at more junior levels) the 3 services have their entrenched positions and suggesting even the most logical change is to guarantee hot coals raining on your head in short order. Really we need to define a coherent long-term national strategy and firm foreign policy strategy. The logical conclusion would be that Britain should adopt a maritime-based strategy. (Acknowledging this subject is worthy of further discussion, this observation is based both on historical precedence and cold analysis of the interests of an island nation). Such a thing is very unlikely to happen, it is simply too radical and demanding for a defence secretary (who may only be in the job for a couple of years) to contemplate. If for example, he or she was to propose significant cuts to the RAF budget or to move some of its assets to the Army or Navy, he would be up against a vast array of land-based air power advocates and veterans, a powerful and well-funded aerospace industrial lobby, masses of aviation historians and enthusiasts marshaled by considerable PR machine (The Navy has nothing really comparable). All agree that airpower is a decisive factor in most conflicts but it would be met with hysterical opposition in many quarters to suggest that it would make sense for Army and Navy to entirely own and command their own integrated air forces. A possible solution would  be to decapitate the senior leadership structure of the Air Force and return the RAF to its roots as a Corps of the British Army, retaining its “RAF” brand name and uniform. This would eliminate a costly bureaucracy which distorts procurement decisions and partially dictates the conduct of land and maritime war to the Army and Navy. The Fleet Air Arm would flourish again and the Army in charge of its own helicopters for instance, could make informed trade-offs around transporting troops by armoured vehicle or air.

4. Spend the existing defence budget more efficiently

Despite years of cuts, the UK remains the 4th in the world for military expenditure. Given the state of our armed forces it is clear the British taxpayer is getting terrible value for money for the approx £39 Billion we currently spend each year on defence. “By cutting waste we can reach our goals…” is the mantra of many politicians and there is indeed huge waste in the public sector. For decades the MoD has been a notorious for bureaucracy, inefficiency and waste. The recent report published by the National Audit Office shows most major defence procurement projects are late and over-budget, although some tiny progress has been made. To be fair, the Coalition government has made some steps to try to address this but as Phillip Hammond observed, reforming the MoD is like “trying to turn a super tanker”. We applaud Hammond’s attempt to get the budget on a sound footing but his short-term book balancing in some cases, is adding future costs and leaving devastating gaps in capability. While the MoD is busy making plenty of in-house cock-ups of its own, much of the responsibility must be taken by its political masters. By delaying projects that have already started, such as the carrier programme or the Astute class submarines to save money in the short-term, these delays add to the overall cost in the long run. By the failing to order in sufficient quantity, the unit price of items increases. A classic example is the Type 45 destroyers. A planned 12-ship class was gradually reduced to a 6-ship class. Instead of getting 12 ships with an average price of approx. £600 Million (including development costs) the RN gets just 6 ships averaging £1Billion each. Instead of spending £7.2Bn on a flexible and resilient force of 12 ships we get an over-stretched fleet of 6 ships for £6Bn. There is also a saving in running costs but still not a sensible use of resources. The decision to not to fit catapults to the aircraft carriers was mainly justified on ground of short-term cost savings. Mr Hammond can crow about how he has “balanced the MoD finances” for now while the RN will have to put up with a big reduction in capability and his successor will have to pay the increased costs (F35B is more complex & expensive then F35C). There is also the problem of ‘Pork barrel‘ politicking over defence. Back bench MPs will usually look after narrow local interest ahead of national interest. This has often resulted in vastly more expensive, sometimes less effective UK-made equipment is supplied to the forces when a foreign option would have been far better and cheaper. Our parliamentary system ensures MPs see defence primarily as a job-creation scheme for their constituents so they will fight for the interests of their local defence companies and installations ahead of what is best for the nation, the forces or the Navy. There are hundreds of examples but recently Norfolk MPs have been badgering the Defence Secretary to announce the F35B will be based at RAF Marham. This base is not best for the Navy or the efficiency of operating aircraft flying from carriers based in Portsmouth but so long as a few jobs in Norfolk are preserved that’s what matters most! Fundamentally our political system incentivises politicians to look to the short-term (maximum 5 yrs) while complex defence projects & infrastructure would benefit from 10-20 year planning cycles. This is a deep conundrum faced by all democracies for which there is no easy answer. There is no accountability for politicians or civil servants who can make decisions that are convenient for them now but store up problems for the future when they are long-gone. Maybe defence is too important to be run by politicians!

5. Spend the existing Navy budget differently

The “Rob Peter to pay Paul” approach has little appeal. There is really no slack in the RN’s budget and after years of cuts there are simply no spare or non-essential assets left to cut. Shore establishments are now most often cited as ripe for merger or closure. Proposals include officer training at Britannia Royal Navy College to merge with rating training at HMS Raleigh or Devonport to close and the surface fleet to move to Portsmouth etc. On a spreadsheet these options may offer some moderate financial saving might be made but at what actual cost? The very successful ethos of the RN is instilled in young officers at Britannia and much could be lost in a merger with Raleigh or other officer training colleges. Devonport is the largest naval base in Western Europe and has many facilities; even now further investment is being made there in a base for the Royal Marines. One day we hope the RN may actually expand and retaining both Portsmouth and Devonport makes strategic and long-term sense. Ironically it is probably the local & commercial interests that have so far protected both bases ahead of any kind of strategic thinking by government. In fact the balancing act of determining how the navy spends its budget is always getting harder, even without cuts because defence inflation runs far ahead of the national inflation rate. Defence equipment generally gets more complicated and more expensive in real terms as time progresses. We have always avoided trying to dictate policy to the Naval staff or playing ‘fantasy fleets’ (There are hoards of armchair admirals on the internet insisting the RN should do this or that). However we broadly agree with the current Chief of Defence Staff who says the RN needs to find a way to build some cheaper ships in the future.

6. PFI and private sponsorship

PFI is very attractive for politicians as they can deliver a service now but defer payment for years ahead when they will be long-gone. It is usually claimed a private company is more efficient than the public sector but of course it involves paying the extra so they make a profit on top of the cost of delivery. The RN’s 4 river class patrol ships were initially ‘rented’ from their builders VT/BAE but have now been fully purchased. Probably the biggest ever rip-off of the UK taxpayer is the RAF’s Voyager FTSA air-air refuelling tanker programme which will cost a whopping £12.5 Billion to deliver and maintain just 14 aircraft. This is to fit refuelling equipment to an existing commercial aircraft design and maintain them. (To put that in perspective the cost of building 2 aircraft carriers is less than half of this. The NAO now says “PFI is not a suitable procurement route for such important military capabilities”). Clearly someone is getting very rich on the back of precious defence funds and is a prime example of why PFI is a plague on all our houses. Private sponsorship of defence assets is clearly a non-starter “HMS Nonsuch sponsored by McDonalds” would be an embarrassing nonsense and there is little incentive for non-defence companies to be involved anyway. Much of UK defence kit now has “Made by BAE Systems” stamped on the side and the MoD is somewhat at the mercy of this monopoly. (BAE’s biggest profits are made in aerospace and inevitably it regards its less profitable shipbuilding ‘metal-bashing’ yards as a lower priority – hardly good news for the Royal Navy). With a very mixed track record on delivery of reliable kit on time but a very solid record of generating considerable profits it would seem it is actually the other way around – the defence budget is more ‘sponsoring’ a private company. Any serious reform of UK defence would involve playing hardball with the very powerful BAE Systems, another very unappetising prospect for a defence secretary.

Conclusion

Faced with what is an extremely tough set of choices, there are no easy options for funding the Royal Navy properly. Point 4 offers the best immediate hope for getting a better fleet. Radical reform in the procurement and delivery of equipment offers the most achievable option making better use of the money available in the short-term at least. It will still need great political strength to fundamentally reshape the MoD, resist the forces of local interest and establish a robust client/supplier relationship with BAE Systems. It is quite easy to dispense with naval assets and capabilities but it is either very expensive or impossible to get them back. Whatever route is chosen, the first responsibility of the government is defence of the realm and a gradual increase in spending on the Royal Navy, together with better management of procurement is a matter of urgency.